Answer to Question #47638 in Macroeconomics for LENKACHAN
As aresult Australia experiences a significant decline in the rate of inflation
Using the aggregate demand - aggregatesupply framework, consider the likely response of the Australian economy interms of the rate of inflation, the level of real GDP and the unemployment ratein both the short run and the long run.
Your answer should be in two partsconsidering first, the outcomes without the lower inflation rate causing achange in potential output and then secondly, allowing for such a change inpotential output.
Over 20 percent of the index is based on items sensitive to energy prices and transportation.
The level of real GDP will also rice, because transportation costs will decrease significantly. The unemployment rate will also fall, as due to the real GDP increase the more jobs will be available in the economy.
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